China's $188 billion military budget far surpasses the $49 billion budget of Japan, its biggest regional rival, even if it doesn't come close to America's budget of $640 billion.

China's military is also much bigger than Japan's, with lots more equipment and 2.3 million active personnel compared to 58,000. Consequently, China ranks third on the Global Firepower Index, which heavily weights sheer numbers, behind the U.S. and Russia and ahead of Japan at tenth.

Even on its own, however, Japan's smaller military has a qualitative advantage over China.

The majority of Chinese weapons systems are in various stages of decay, as detailed by Kyle Mizokami at War Is Boring. Only 450 of China's 7,580 tanks are anywhere near modern. Likewise, only 502 of China's 1,321 strong air force are deemed capable — the rest date to refurbished Soviet planes from the 1970s. Only half of China's submarines have been built within the past twenty years.

In comparison, Japan has been supplied with advanced military equipment from the U.S. In the coming year, it is slated to purchase new anti-missile destroyers, submarines, amphibious vehicles, surveillance drones, fighter planes, and V-22 Ospreys from the U.S. Japan also expects to receive deliveries of F-35s starting in March 2017.

The F-35 is Liaoning's worst nightmare, China's state-owned Global Times reported based on a Kanwa Asian Defense, which found that the F-35 could strike the Liaoning with hard-to-intercept joint strike missiles from a safe distance of 290km. The F-35 should also be able to locate and engage China's main aircraft, the J-15, before the F-35 is even detected.

The Japanese islands are also well protected by a missile defense system equipped with Standard Missile-3 and Patriot Advanced Capability-3 interceptors. These missiles are capable of shooting down a ballistic missile both inside and outside of Earth's atmosphere.

"Japan has the strongest navy and air force in Asia except for the United States," Dr. Larry M. Wortzel, the president of Asia Strategies and Risks, said in a presentation at the Institute of World Politics last September. "They're still restricted by Article 9 of the Constitution, which forever renounces war as a sovereign right of the nation ... but you don't want to mess with them."

Meanwhile, the standoff is hurting most groups short of the military industrial complex.

As noted by U.S. Trust's Joseph Quinlan: "No one is predicting an armed conflict between China and Japan, but the rising ill will between the two parties hardly engenders investor confidence in a region built on peaceful regional relations and unfettered trade and investment flows."